Ken Rogoff Defends A Robust Negative Rate Policy At Hoover

I first want to say that my papers joint with Andrew Lilly who is a graduate student at Harvard. I also have two. I work in my 2016 book has a lot about these issues. I’m going to talk about today. I tried very hard to be comprehensive in my citations in the book and Andrew and I produced a paper which also tries to be very comprehensive in its citations. But I did not realize that Andrew and Mike had written this great. Recent NBER paper which I basically agree with with much of it. It also makes me realize that has my session chair and my discussing it. I have two or perhaps the six people in the world who think this idea is not crazy. So. But I’m sure we’ll get a lot of comments on that. From the from the audience. So a first point is that we’re talking I’m talking about the long run.

I don’t care if I’m not talking about doing serious negative interest rates if there’s another recession we’re not ready. We haven’t taken the various tax legal regulatory changes that are needed. These are I would say pretty minor administrative issues. And if you look at the Nordic countries Switzerland they have by and large been able to settle these rather quickly. But that doesn’t mean that we could in the United States. There are lots of little ways to game the system.

If you don’t deal with it. However no country has really done negative rates in the way that I think I’m talking about in my book and Andrew and my Journal of Economic Perspectives paper.

This paper with Andrew which is really to find a way to prevent large scale cash hoarding which is I think by far the toughest problem to deal with. It’s the money it’s a central problem to deal with and if you don’t deal with it you can’t do very much you can do these mild negative interest rate policy that has been experimented with in Europe and Japan and by the way I think that my summary of what the empirical literature on that is that worked about as well as other alternative monetary policies which by the way was not very well but that it’s something something similar. So if you can find a way to do that then you’re able to do much more. My my book suggests several ways you could have negative interest rates including doing nothing to the current system except finding a way to pay negative interest rates on cash. Having digital currency and finding a way to pay negative interest rates on paper currency you really don’t care about small depositors you don’t care about people with a few thousand dollars and I don’t want to quite say it’s trivial but it’s pretty easy to find ways to exclude almost everyone from the negative rates. What you’re trying to do is prevent pension funds insurance companies financial companies from doing large scale cash hoarding tens of billions of dollars. You don’t you’re not. You’re not doing this to lock in extra profits for the government you’re doing it to stimulate the economy in a deep recession a financial crisis and to end to raise inflation expectations.

This clearly the United States is the country which is definitely not first in line to do this. I appreciate it. Mike Bordeaux is introductory remarks and I think there’s several reasons for that. One is as the vice chair said the US is in a pretty good place it’s actually growing.

It’s not in the same situation as Japan and Europe and therefore the although the neutral interest rate is lower. It’s pressures are not as severe. There are also other issues that there’s a lot of U.S. dollars held abroad. I consider that at length in my book and argue that nevertheless scaling back currency would save a lot more money in crime tax evasion even if you change them both just a few percent than you’re making from foreign holdings but nevertheless that issues there which it’s really not for very many very many other countries and Europe and Japan are at the zero bound there.